Usually, the Income-Tax (I-T) Department has the infamous reputation of harassing gullible and low-income taxpayers while (conveniently) providing “under-the-table” escape routes to the big tax evaders. But contrary to this belief, the I-T Department has also been known to offer relief in the litigation process to tax-payers with genuine cases from time to time. Ironically, one of the Supreme Court’s recent rulings has disqualified this goodwill gesture 

Supreme Court made a landmark decision recently. It prohibited the Central Board of Direct Taxes (CBDT) from issuing any circular with retrospective effect.

According to one of the senior practising Chartered Accountants, “Many small taxpayers who had earlier faced tax demands of between Rs 4-10 lakh may be impacted. These cases, which were dismissed by the tax tribunal, may now be revived and referred back to the tribunal. This will increase litigation and assesses too will have to cough up extra legal expenses,” 

Here’s why…

Commonly, disputes between the I-T Department and taxpayers over the amount and incidence of tax aren’t new. At times these cases turn ugly, and either of the parties moves to the I-T Appellate Tribunal. Such cases reach the high courts and Supreme Court when either of the parties does not agree on the decision of the Appellate Tribunal. Needless to say, all this involves a massive cost to both the parties.

To avoid unnecessary frictions and save cost, I-T Department released a circular in 2011 which stated it won’t knock the doors of Appellate if the disputed tax amount is less than Rs 4 lakh and the Commissioner of Appeals has judged the case in favour of a taxpayer. Similarly, the I-T Department decided to not approach the high courts or Supreme Court where the amount in question is less than Rs 10 lakh and Rs 25 lakh respectively. In December 2015, the Department decided to increase the threshold limit for not filing an appeal in the Appellate Tribunal and the High Court to Rs 10 lakh (from Rs 4 lakhs) and Rs 20 lakhs (from Rs 10 lakh) respectively.

This provided a huge relief to all those taxpayers tangled up in a case against the I-T Department between 2011 and 2015. These were cases where the disputed amount was Rs 4 and 10 lakhs for the cases pending with the I-T tribunals. Similarly, cases with the high courts for disputed amounts ranging from Rs 10 lakh and Rs 20 lakh were also dismissed, since the aforesaid increase in the threshold was applied with the retrospective effect.

But the latest Supreme Court ruling clarified that I-T circular won’t apply in a retrospective manner. In other words, now cases between 2011 and 2015 can be revived.

Reacting to this development Mr Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP said, “This was not CBDT’s intention. Now the fear is that the I-T department would apply the order mechanically, clogging the judiciary with appeals having low revenue impact.” 

Impact on taxpayers…

This development will impact you, dear taxpayer, only if there’s an unresolved case pending against you from the I-T Department.  And, it got subsequently dismissed because the cases filed crossed the threshold limit.

Nonetheless, to avoid frictions with the I-T Department, you should comply with all the tax rules, pay taxes, and file tax returns before the due date. Aadhaar linkage with bank accounts and other important financial services has made it almost impossible for you to go unnoticed.  

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